Germany bails out mortgage lender Hypo Real Estate (Lead)

Berlin, Sep 29 (DPA) The banking crisis spread to Germany Monday, with the government and fellow banks forced to throw a 35-billion-euro ($50 billion) lifeline to Hypo Real Estate (HRE), a mortgage lender.The bail-out, the same day as Britain nationalised lender Bradford & Bingley (B&B) and a day after three governments took stakes in Belgian-Dutch insurance and banking group Fortis, showed that the crisis has spread well beyond the US.

Under a deal secretly stitched together Sunday, Berlin said it would not be nationalising Munich-based HRE, but would post a guarantee for it of 26.6 billion euros, while German commercial banks would protect HRE from default with up to 8.5 billion euros.

If the guarantee were called, Berlin would be unable to meet its target of balancing the federal budget by 2011, analysts said.

HRE, founded in 2003, is Germany’s second-biggest mortgage lender, but mainly lends to commercial developers and local bodies, not to private home-owners.

It said from its Munich offices that it aimed to trade its way back to good health and had posted 42 billion euros of first-class assets, mostly debt owed by public borrowers, as prime security for the cash injection.

The guarantees were obtained “in response to the extremely challenging conditions on the international money markets following the Lehman collapse and other market disruptions”.

The failure Sep 15 of the New York investment bank Lehman Brothers has undercut confidence in banks in many nations.

In Berlin, Finance Ministry spokesman Torsten Albig defended the bail-out saying a “non-orderly collapse of HRE” would have posed “massive risks to the economy” in Germany.

“Everyone is aware this can have consequences for the federal budget,” said Albig.

HRE, which figures among the 30 top companies in the DAX stock index, fell victim to problems at its Dublin-based unit Depfa, which specialises in loans to local governments in Germany.

Depfa had pursued long-term projects with heavy loans and generally ensured refinancing only at the last minute. Economists said Depfa normally obtained 250 billion euros in funding per year.

It was caught 35 million euros short when other lenders declined to let it have sufficient short-term money.

Hours after the announcement, HRE shares were trading at 4.01 euros on the Frankfurt Stock Exchange, 70 percent lower than Friday’s close, dragging down the value of other banks.

Commerzbank, Germany’s number-two bank, said it had already secured all the refinancing it needed this year and had no desire to take over HRE. Commerzbank stock dipped up to 25 percent before clawing back some ground to 11.92 euros by mid-afternoon.